💰 Get Funded! Founder Interviews w/ Preston Troutt, Founder and CEO at Crowdsurf 🚀 09-27-2024

All right, we are now live for another week for our Get Funded Office Hours. Every week we have promising early-stage founders that come here and talk about their companies and their stories, so we're super excited to do this for another week. Uh, for those that do not know me, my name is Darrel Frater. I am senior associate at Serac Ventures. We're a seed-stage venture capital firm in Oklahoma investing across the country. We We primarily invest at the seed stage, do some pre-seed as well, writing checks anywhere between $250K and $750K. We're actively deploying. So if you're a founder, we'd love to talk to you. Today we have an amazing, amazing founder that I met a few months ago, Preston Trout, who is the founder and CEO at CrowdSurf. I would love for Preston to jump in, tell us a little bit about CrowdSurf and what you do, and then we'll dive into other questions. You have the floor, man.

Yeah, man, I appreciate you having me on. I really appreciate it. But yeah, so I started CrowdSurf. So we work with creators and we have this interesting funding model where we give creators the ability to raise money like a company in exchange for future revenue and IP. So our view is that, you know, these individual creators, you know, are really companies themselves, but they don't have access to capital the same way that companies do. And it's very much a venture-like approach where you're investing in everything that individual does for a duration of term or time, generally kind of 10 up to 30 years. So we're excited. We started, we have our first creator live right now. We did kind of a closed beta offering behind closed doors. And, you know, the first creator, their offering ends in the next kind of 4 days.

That's awesome. That's super exciting, man. And tell us about the origin of this idea. You know, the first time I actually heard of this concept was on a podcast. I think it was the 20VC podcast where I saw another company way back doing something similar. But tell us a little bit about like the origin of like how this kind of concept started and why are you so passionate about like being able to allow people to invest directly into a creator's career?

Yeah, definitely. So, this regulation type, you know, came about in the JOBS Act of 2016. And so, it's only been really around, you know, 8 years or so. And basically, through that, it was designed to allow unaccredited investors to invest in startups. And so, before this, I was at a $1.5 billion family office, you know, investment fund. And while I was there, we did the angel round in a company called Commonwealth, which does this exact structure except for racehorses and then golfers and tennis players. And so while I was there at that investment fund, I was still working there, but I basically went full-time with Commonwealth and got very familiar with the SEC regulation side. The technical side, you have to build your own tech out integrated with escrow, all regulatory tech, and then just these kind of alternative investment potentials. And so, with that company, we actually had a horse that returned like 12x on an investment, and then we broke up the ownership to a horse before the horse had ever raced. Fast forward 8 months later, the horse wins the Kentucky Derby. And so just a really interesting time to see, you know, that horse had 392 owners who were invested in him, invested before he ever raced, and then he wins the Derby. You know, that's the pinnacle of the sport, and you have 392 people. We were at the Derby, we rushed the winner's circle, had hundreds of us in there, it felt like. But during that time and while I was at the investment fund, I had done a lot of work on the gaming space and really kind of the entertainment space and looked at the esports orgs, FaZe Clan, OpTic, 100 Thieves, looked at the developers of the games, the publishers of the games, and then really the picks and shovels and saw that there was this really interesting kind of group that really sat on top of all of that. in these video game streamers and really these content creators as a whole where, you know, every single piece of the entertainment industry was really starting to go to them to pay them to play the game, to pay them to promote the game, to, you know, give them equity in the games, which was really just starting at that time. This was kind of 2020 time period. And the thought was like, okay, You know, and then I kind of really looked at the funding infrastructure for this creator world and there was companies like Spotter that were basically giving these individuals money in exchange for their back catalog. You know, investors knew how to invest in startups that these individuals were creating, which was very early. You know, you hadn't had Logan Paul and MrBeast do what they did. And then you had like advances, which is kind of what the music industry has done, you know, an industry that's, you know, 75, 80 years old. But you really didn't have a venture-like model for these individuals basically saying, hey, you know, you have 4 things going on. None of them are really an investable idea or venture-backable idea, but if you tie them all together, And that individual basically attributed everything they were going to do for a set period of time, you know, double-digit years, then all of a sudden you have an investable idea where you say, okay, I wouldn't invest in one of those individually, but I would invest in you. And so you— we tried to— we really replicated this, this— or not replicated, created this model, giving, you know, individual retail investors the ability to invest in their— in that creator or individual. And then there's an annual distribution of that individual's top line. So it's equity investment, but there's distributions tied to it. And so the real kind of, you know, to tie all that together, you know, we saw that there's large power in having this community of investors and then really saw that these individual creators were starting to rival corporations like Logan Paul with Gatorade and Prime, MrBeast with Feastables. And so, and you have a number of these individuals where, where truly, you know, public trust is moving away from companies and to the individual. An individual, you know, and they've been marketing those companies. What happens next is they're just going to start competitors. And so venture-like model for these individuals earlier in their career.

That's awesome, man. I think by creating this new almost asset class of its own, you're allowing unique people to be able to get into this asset class as investors, but also the creators that need that extra resource to get their creator business off the ground, they have a pathway to acquiring this capital in a way that they probably couldn't do it before. I would love to hear, like, when you think about your target market, both on the investor side and the creator side, who is this for on both sides?

Yeah, definitely. So on the investor side, I think there's really kind of 2 groups. You have the more— the individuals who are just interested in understanding investing as is, but may not really know the creator. You know, individuals that could put maybe larger checks, you know, also individuals that are looking for like, you know, investment opportunities that are really uncorrelated to the broader market. And then you have the other side, which is the creator's community. You know, you have these individuals that have large communities of people that follow their every move, yet they're still kind of living month to month. The revenue hasn't caught up per se, and they have a lot of potential opportunities, but no real access to capital to step on the gas. And so, a creator that we work with, for instance, to go into kind of a creators that we target. You know, he's an individual who has a number of different channels. Um, kind of his biggest is on a short-form YouTube channel, but he's got a number of long-form YouTube channels. And, you know, he's really for, you know, in order to keep the lights on, the— he's got to continue kind of cranking out the short form, um, and taking brand deals there. But he's gonna raise, you know, he's raising money And the entire idea is he's gonna hire a couple part-time editors to crank the long form, take his eyes a little bit off the short-form channel and really go hard at the long form because of the monetization that can happen. You know, on his short form, he's got, you know, a ceiling, but on his long form, he doesn't at all. And so we generally like creators that have a core platform, generally YouTube or video games, you know, or streaming, that have not only the creator mindset, the ability to like, you know, kind of get the following, you know, and get views, but also a business mind of, hey, well, what do I do with this? Okay, I'm analyzing, you know, my revenue I can make per 1,000 views. I understand that. I understand You know, that if I start to scale, what else do I kind of set up alongside that? And then I think the third thing is like, what is their niche? You know, like, like, do they have something they're known for or are they just kind of famous for being famous? You know, people can get— people can grasp like quick taglines like, oh, that's the Fortnite guy, or oh, that's the skit comedy guy. That's the— he does this like Discord mod comedy skit videos. And so I think really on the creator side, it's like true platform showing how you can scale creator and business mindset, and then some sort of niche that they, that they can, that they can own and scale.

That makes a lot of sense, especially for those creators that already have an established audience, kind of know where they're at, and they are at the point to where you kind of know they're in it for the long haul. Not gonna just raise some capital and kind of dip off with it, but really be able to use that to invest into their own creator business and scaling with that capital. So I think that's perfect, like a sweet spot for them to be in when they come to a platform like yours. How much capital are they able to raise on their platform? And then we can also talk about kind of where you're at with the platform. How many, you know, do you have people already on the platform? Is it live? Let's get some insight on that. So first one, How much can people raise? And talk to us about some success stories on your platform so far.

Yeah, definitely. So we got what's called a Reg CF funding portal license. So we're registered with the SEC, and with that license, it allows us to raise up to $5 million from unaccredited per creator for as many as we want a year. And so each creator can launch a you know, an offering that's up to $5 million, um, and take money in $50 to $100 increments from unaccredited investors. Um, and if they were to raise more, which I don't plan on doing anytime soon, but I would love to, uh, is you can set up, you know, a Reg D alongside of it for accredited investors, which you can, you know, go as high as needed. And so, um, That's kind of the limitations there. Currently, we have an offering live that's a $120K raise. We're about halfway committed there. And then there's a couple other individuals that are looking at filling out the rest, a number of kind of pretty massive YouTubers that are looking at filling out the rest. And then, so we're excited for that. That's currently. There's certain limitations around what I can and can't say around offerings that are live, given we're the funding portal, but currently have the one live, and then I have a couple others kind of just about there afterwards.

That's exciting, man, and congratulations just being able to be a pioneer of this new model of investing directly into creators. Through this similar, like, crowdfunding portal. And I think that this is something that, you know, especially if you have these wins of like, hey, this person raised capital from this way and then became the next Logan Paul or MrBeast, it becomes this thing where people see this as, hey, maybe I can do this as well. So definitely hoping for those early wins to really propel this as a staple within the ecosystem of how people can get the initial capital they need for their creator career. So congratulations on just pioneering the way.

Yeah, that's cool.

I'd love to talk about, you know, anticipated or kind of what is the return profile that is ideal or targeted or estimated when people are investing in these types of asset, new asset classes? What is like the promise or the expectation when it comes to investing in this way?

Yeah. So I think to best explain that, I can kind of talk through the structure of how it's set up. And so, you know, every creator will have an LLC that they run everything through. That's their operating entity. And so what— the way the structure is set up is there's an additional LLC taxed as a C corp that's set up alongside that where the money is raised. And that's so that investors get a 1099 and the creator keeps their pass-through benefits. And that entity is kind of entitled to, you know, the percentage from the creator's revenue or revenue rights. And so, you know, the cool thing is that with that, you know, if a creator goes, let's say it makes $100K in a year, $10K to 10% is distributed down. small tax withholding, and then out to investors annually, which we can get to monthly. And so, it's a cash-flowing product, investment product with equity-like, venture-like potential. And so, that's the interesting thing with creators. Our first creator that we work with has 8 different revenue streams. And some of his channels have the potential to be sold altogether and some of them don't, but you're not necessarily playing for that. You know, you're playing for, okay, I'm investing in this individual and I'm aligning with everything that he does for the next 10 years. Now that's platform revenue, brand deals, merch revenue, companies created, equity that he gets in companies. You know, and then whatever is created, any IP or companies created during that 10-year time period, investors retain their rights to even after that's over. And so if that during those, you know, that 10-year time period, that individual goes and starts a, you know, let's take the Logan Paul scenario. He starts Prime during that time period. Investors retain their rights to 10% of Logan Paul's piece in that. And so that's how you have the chance to go do, you know, you know, a 1,000x, albeit the probabilities are low, the same way that venture is. But then you have kind of the side of just the annual distributions from the other channels that are being distributed out. And so, you know, there's the chance, you know, to really, you know, when you're aligning with an individual to go do, you know, kind of a massive return, but you have the annual distribution flow out. And so I think that's the interesting thing. You know, there's another company that does what we're doing except with just the YouTube channel, and that's interesting, but you don't really have that high RIP potential. Now our valuations will be a little bit higher than theirs, and so, you know, you're going to have You know, of variance in outcomes on our side. But yeah, so that's kind of— I wanted to talk from the structure on how it's set up because, you know, you have the annual distributions, but you also have the equity-like potential if that individual really starts to scale.

Yeah, that's super interesting. And similar to our work as investors, it's high risk, high reward. So, you know, being able to put a few thousand dollars in and who knows, this creator might really become something special. But getting that opportunity to be able to invest that early really opens the door to a new way to invest and make a great return. So thanks for making this even a possibility for everyday individuals that want to get this kind of exposure, especially like you said in the beginning, you could be a huge fan of this creator, but now you get to just have the enjoyment of participating in the upside of their success, which is probably an incredible fan experience as well.

Yep. Yeah, 100%. Yeah, I think that's the other side of this that will be the fun part, you know, of like you're really investing in what that— everything that individual does over that, you know, over that term length. And so you'll be following along, you'll have an investor dashboard where you'll be able to log in and see that creator's revenues broken out by category. As well as kind of the distributions that come from that and eventually the analytics across all social channels. And so you'll really be able to follow along and like, you know, almost feel like you're a creator, you know, along for the ride, seeing the different breakouts of revenue and analytics happening. And so you have that emotional side where there's entertainment ingrained in what's going on. Because of the access to information of what's really happening with your investment and with the creator.

That's awesome, man. Great insight. And thank you for sharing that detail. I don't want to dive too much in the weeds, but I do have one question that came to my mind in regards to creators and other things that they do outside of what they're considering their creator business. How do you maintain the value to be held within this entity And for them to not go off and do new things that aren't benefiting those early investors? Can you tell me the off-platform things or things that— how do they retain doing that great work that benefits the investors?

Yeah, definitely. So the other part to the contract is basically the individual signing an agreement between themselves as an individual and their entity that says everything around my creator career. And there's, there's a number of kind of definitions in that really name, image, likeness, public persona. And then you really list out what's included and not included. We'll go through this entity. And so it's an— and then the understanding is, you know, I'm raising money based on this. that I will put everything that I do through this entity, you know, and so you don't miss the Logan Paul scenario, you know, and then you have exclusions. So like any publicly traded stocks that they buy at the— if they're public at the time is excluded, any real estate is excluded, you know, but then everything around their creator career is put through there. And then you— the second part Well, actually, that's not part of the question, but to really protect the individual, there's a minimum revenue threshold that's set and basically saying, hey, until you make this amount each year, you don't give up that percentage. And so it's to really, the idea is, okay, we think you're a talented individual. You don't have access to capital. So, let's get you, you know, sometimes multiples of your last year revenue and align with everything you do. And if it doesn't work according to plan, you know, there is a kind of a minimum revenue threshold that you have because we're really trying to play the winners, you know, and what we're really trying to do is give that individual the ability to think Medium to long, rather than short-term. Rather thinking in this place of, well, let me take this brand to keep the lights on, you know, a little bit more form to keep the lights on. Um, did I lag out?

You're good now.

Can you see? Okay, interesting. Yeah, I just, I just lagged out for a sec.

Okay.

Yeah, it looks like it's all back.

Awesome. We have a lot of founders that listen to this as well as investors. And looking at your LinkedIn, that had a question that sparked into my mind. Your LinkedIn says, in the future, every individual will be able to access investment capital based on their future financial output. And you believe that creators will be the biggest beneficiaries of this model. I want to ask you, what do you think is the importance of having a unique perspective on what you believe the future will be like? And how does that shape and mold you as a founder? And should other founders have this kind of unique perspective of what they believe in the future before deciding to start a business? We'd love to hear your insight on that and how your unique perspective drives you and CrowdSurf.

Man, yeah, that's an interesting, uh, that's an interesting question. Um, yeah, it's, uh, you know, the That mindset or that thought really started from a place of rather than looking at individuals accessing capital based on their future financial output, it really started in a place of like almost like a bottoms-up, like, hey, creators need capital and there's no real access for them that makes sense for them. Most of them don't have a company idea. Most of them, like, you know, only the big ones really have a catalog that you can advance money based on. So it really started with like, there's this interesting class of companies that are starting to come up that don't have access to capital and no other model makes sense. But these individuals at the high end are starting to rival companies. And so it's like, let's apply this. And give them a venture model and let them raise money from their fans to really step on the gas. And then you align everyone with everything you do. And when we started that, I was like, I think this will really work. I mean, you know, and then I think what's interesting is I've seen a number of other players that have popped up, you know, slow ventures. The Lieberman brothers that have really, I think, continue to help me flesh out what this space could be. And the Lieberman brothers have this really interesting stat that talks about collective national ownership of wealth through generation. And granted, there's going to be some redistribution of wealth and some changes in this, but granted, it's a trend. And the idea is, okay, you know, boomers, when they were, you know, in average age 30-ish, you know, they own 28% of national wealth. You know, Gen X, 8%, millennials, 2.8%. Gen Z's on track to, to be negative 2.8%, meaning you'll own nothing. And the government most likely isn't going to fix that. But historically, capital markets have been able to. And so, the thought is, okay, is there a way for young, talented individuals to access capital based on their future financial output? Understanding that there's wide varying degrees of outcomes and your youth is your biggest asset. When you're 18, when you're 20, You have such a wide dispersion of outcomes rather than when you're maybe 40 or 50. And so, that is a thought that's formulated over time but makes so much sense. You know, I think I've gradually gone into that because, you know, another side is like, there are a lot of incredibly talented individuals that don't have a venture idea. Hundreds of thousands. You know, it's like if you think about that thought, you know what, like everyone's had that thought where it's like there's a young dude and it's like, I don't know exactly what he's gonna do, but I would bet on him.

Yeah.

You know, and so that's the thought I think with this, um, you know, is like a lot of those individuals don't get that chance, you know. And I think for, for me, I had internal backing from my family at the start, probably potentially before I was really ready. But it, you, you know, you, it gets, you know, and I'm so incredibly thankful for that. And, you know, there's that the, the side of like with that, it's like, okay, well, these individuals, like no one's really ready for it, you know? But if you said, you know what, I want to get you in the game. Flood you with cash, understanding that you're going to make a lot of mistakes, but we're going to get you in the game that much quicker. And so I think like going back to it, I think those thoughts are formulated over time. You know, you see some of these founders where it's like, man, I was so naive when I started, but I'm so thankful for that I did because the thoughts come together as you go. And you need to have a clear thesis, but you see them and it's like, just go, just start messing around, you know, and really like have a core thesis, but understanding that you're going to make mistakes, which I'm continuing to make thousands. So I'm still figuring— I'm saying all this from like another lens, you know, not like I know anything. But it's like you see these founders talk about like, man, if I would have known all that, or, you know, it's like you have, you can put together 9 out of 10 and then you gotta go figure it out. You know, I think that's where I'm at right now. But it's like this, this cool thing of like, just get going, you know, and just put things into motion, you know. Once again, I'm figuring out all that. So I'm not talking from a place of I know anything. I want everyone to be clear on that.

Yeah, no, that's incredible, man. And I think just having that unique outlook of what you believe the future will be like really puts you in a position to have confidence and conviction to go the path even when no one else sees it. So kudos to you on what you're doing. Similar to you, I have a belief that wealth will be distributed, democratized, and people will have more access to wealth-building opportunities. So I love what you're doing with CrowdSurf, both on the creator level and the individual investor level. You know, both sides of the market have a potential to use it as a wealth-building opportunity. So that's why I think what you're building is super exciting, unique, and much needed in the ecosystem. But thank you so much for joining us today for our Get Funded Office Hours series founder interview. It was really great hearing your story and a little bit more about CrowdSurf. Could you please tell everyone what's the best way to stay in touch with you and the work that you're doing with CrowdSurf?

Yeah, definitely. I think number one, I think you can check out our site at crowdsurf.xyz. We've actually got a whole kind of brand refresh that I'm pretty excited about coming a couple weeks from now. And then number two, I think like LinkedIn is easy. I've tried to be fairly active there. That's actually how you and I connected, which is pretty cool. So I think those 2 right there. I think check out our site. We have an Intercom little chat thing that just texts me whenever someone hits it, and then LinkedIn as well.

Awesome. Well, thank you, Preston. It was a pleasure, and looking forward to staying in touch and following your journey. For everyone here that's on the call, please join us as we transition to our Get Funded Office Hours. Every week, we have great investors from my network that join us. you to pitch them. Today we have Yusuf from Ally Corp and my friend Bruce from Everybody Ventures. So if you please want to join us on Twitter Spaces for that session, join us over there. We'd love to have you. But thank you so much and have a great day, everyone. See y'all soon.

Thanks, everybody.